The Lightning Network is a Layer Two protocol that is aimed at solving scaling issues in blockchain by allowing transactions to happen much quicker with the same security as on-chain transactions.

With the proliferation of Bitcoin and the growth in numbers using the network, there have come a few problems that the blockchain was not ready for. Bitcoin operates as a ledger where transactions are written on a distributed ledger, but when there are more transactions that can be written down efficiently, prices for transacting soar, and so does the time.

For Bitcoin to operate as a powerful payment network as is described in its white paper, it cannot suffer slow transactions or expensive ones for that matter. This problem emerged as more and more people started using Bitcoin to transact beyond the capabilities of the blockchain. To try and solve this, solutions like the Lightning Network have been put forward.

The Lightning Network is known as a Layer Two payment protocol. This means it operates above the base layer of Bitcoin, for example. This means transactions are taken off chain and operate between participating nodes.

Using the Lightning Network for transactions ensures near-instant movement of cryptocurrency, and with very minimal fees, regardless of how congested the network is. The reason for this is because the nodes on the network are not needed to confirm the transactions.

The Lightning Network operates by laying channels between two parties who agree to make transactions among themselves. These channels remain open and can allow for multiple transactions, it is only once the channel is closed that the transactions get written onto the Bitcoin ledger.

This network of different channels between various parties combine to form a network of lightning nodes that can move transactions among themselves. The various connections on this Layer Two result in the Lightning Network.

This method of solving long-term scalability issues with Bitcoin seems sound in principles, but there are some issues and criticisms of the Lightning Network. For one, it is believed that the Lightning Network is not as secure as the Bitcoin network, and thus vulnerable to hacks. Taking transactions off the blockchain means removing much of the cryptographic security that comes with it.

Additionally, the Lightning Network can be transformed into a relatively centralized entity with a few powerful points in the middle forming a hub-and-spoke model within the lightning network. This offers a lot of power and control to these central Layer Two nodes and departs from the decentralized nature of blockchain and cryptocurrency.

lightning-network.png A representation of the Lightning Network channels.